For more than a generation now, like it or not, Wall Street’s financial engineering has helped determine whether the average American can buy a home. Once upon a time—before Wall Street stuck its nose under the mortgage tent—the formula for homeownership was pretty simple: if the neighborhood banker thought you would pay it back, you had a pretty good chance of getting a 30-year mortgage. The local touch gave both parties the incentive to do the right thing. Keep making mortgage payments, and you get to keep your house; the banker, meanwhile, has a valuable asset on the balance sheet. Everybody’s happy.

This sensible dynamic between borrower and lender began to change in 1977…